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Apple (AAPL) -1% after Deutsche's Japanese team writes supply chain activity suggests a 30%+ Q/Q...
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Friday, January 4, 9:29 AM ETApple (AAPL) -1% after Deutsche's Japanese team writes supply chain activity suggests a 30%+ Q/Q drop in iPhone 5 production for the March quarter. UBS, Jefferies, and others have already cautioned iPhone production is set to fall sharply this quarter, thus some bad news on this front appears to be baked in. CRUS -1.2%.
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This news story has 47 comments:
Would also be interesting to know if any other Deutsche branches initiated short positions before this revelation.
I guess "projected" is the key word there. However, we will all know in a couple of weeks when Apple reports earnings. Seriously, anyone who doesn't think this stock is being manipulated better get a clue. Personally, I think people should go to jail for this type of behavior. No wonder the "average Joe" doesn't trust the market anymore. Why should they when they see stuff like this happen?
On December 29, 2009, the South Korean government moved to pardon Lee Kun-hee.
When several different firms independently claim that their checks indicate iPhone/component orders have been cut for calendar Q1, there's probably some truth to the reports. That said, I agree with Deutsche that the news seems to be priced in.
I agree with this statement as far as it goes, but it is also important to consider recent history. Pretty much everyone has agreed that Foxconn was unable to assemble as many iPhone 5's as Apple had ordered last fall, so analysts became convinced that Apple's Oct-Dec earnings (released in Jan. '13) would be disappointing. To deal with the supply constraint, Apple reportedly signed new contracts for greater iPhone production last fall, not only with Foxconn but also with another company, Pegatron.
By several accounts, that move increased Apple's iPhone 'build rate' to 60 million iPhone 5's and helped the company (in my opinion) come to terms with the supply constraint.
So far, so good. But by ramping up production to catch up to its Oct-Dec target, eventually more iPhone 5's would roll off the assembly line than originally planned. That is taking place now (Jan-Mar quarter). To avoid accumulating too many inventories, then, Apple needs to temporarily slow down production and reduce its components orders. Once production is back on track, components orders will return to normal.
This is like constructing highways. If the new super-durable concrete you switched to dries 20% less quickly than you anticipated and you absolutely must finish 50 miles of highway by the end of the year, then you quickly hire more workers, lease more equipment and purchase more cement and start pouring more concrete on the ground than you originally planned. But eventually all of that concrete does dry, and you'll be ahead of schedule. So for a few weeks/months you send some of the workers home and lower your concrete orders until construction is back on schedule.
So that's where Apple is today. It's mis-calculations in the early fall led to temporarily high components orders in the late fall, and components orders were temporarily depressed in the early winter. Just what one would expect AFTER learning about the supply constraint (Foxconn's CEO said the iPhone 5 is the most difficult-to-assemble device it has ever produced) and Tim Cook's need to flood the market with iPhones before the end of the quarter.
The December reduction in component orders is actually a positive signal for the January '13 earnings report. It means that Tim Cook is satisfied that 'enough' iPhone 5's had been produced to satisfy analysts. If he hadn't believed that, he would have continuing ordering more components and today we wouldn't be reading about component orders being lowered.
Regardless of one's position regarding iPhone vs. Android phones, Apple did NOT lower component orders because it discovered that iPhone demand is weak. In December, when component orders were being lowered, Apple had yet to begin selling iP5's in China or India. If iPhone 5 demand is weak, we'll discover that later in the model year ... not one quarter after its USA launch (where it's still selling out) and nearly at the same moment as its launch in dozens of other countries.
Analysts probably have their objective facts right, but evidently lack the analytical skills to interpret what those facts mean.
Some analysts, especially the ones at firms without resources to perform research, are copying others' reports. They need to publish something to make themselves productive. We need to ignore these "independent " reports.
It seems more likely that any new iPhone launch in March would be the recently rumored low-price model for less developed countries or a big-display model to compete with jumbo Android devices. Those moves would result in *increased component orders for the new devices, and possibly some offsetting *reductions in component orders for the iPhone 5 to the extent the new iPhones 'cannibalize' the 5's sales.
It seems possible that cannibalization could lower iPhone 5 sales by 30%. If it does, consider the impact on TOTAL iPhone sales implied by that number.
With an iPhone 5 build rate of (let's say) 40m in the Apr-Jun quarter, that means the new model(s) would be cutting into iP5 sales by about 12m units. However, the new iPhone(s) form factors would be most appealing to consumers who are uninterested in purchasing an iPhone 5. So perhaps 3/4 of all of these sales would go to 'new' customer cohorts. Since the 1/4 amount to 12m units (cannibalized from iP5), three times that number (36m units) would represent net new iPhone sales. This 36m + original 45m = 81m total iPhone sales in the April-June 2013 quarter.
This is not a firm prediction, because it rests upon several key assumptions: iP5 component orders are down by 30%, solely because of a one or more new iPhone devices being introduced in approximately March. IF those assumptions are accurate, then Apple's TOTAL iPhone sales would possibly increase from 45 to 81 million units per quarter: 80%. A cautious forecast would phase this figure in over the course of a few months ...
"The market is designed to transfer money from the active to the patient."
-- Warren Buffett
1Q12 was going to be underwhelming. There were cuts to 2Q12 orders.
Blah blah blah. We all know how that turned out.
-The iPhone 5 sets record first day sales numbers across the globe,
-Has a record rollout in over 100 countries before the end of Q4,
-50M iOS and Android devices are activated over Christmas week,
-The iPad mini is a booming success
Yet all that is forgotten with one report, which may or may not be correct, and may or may not be interpreted correctly.
Good luck ever getting retail money back in the market when stocks are traded in this fashion.
Watch earnings for crus - 1-21
VZ - 1-22
T - 1-24 (before bell) aapl is usually after bell
If aapl beats like they did last year on rev/eps/margin it will go higher for a bit until techies detect a Siamese twin head and shoulder that would represent a potential downward slide to a monkey finger just prior to Debt Cliff Armageddon.
Long aapl past earnings.
Apple anticipates demand drastically with new products released and specially at Christmas and then happens the adjustment. It would have taken seriously this article if they do not comment about the end-2012 sales being weak. Total nonsense after all sales records across the globe (included the 1 line person country China).
So it's all BS and IMO one of the last opportunities to jump in the Apple train before the ER.
1. Calendar Q1 has a 15 days off for the Chinese new year (in Feb.) in China. Apple certainly will build a lot more in Q4 2012 to prepare for the factory shutdown in Feb. 2013, which translate to 17% less production capacity in Q1.
2. In general, Q1 is the slowest season for any consumer goods, including Apple. a market demand of 20% drop is normal. So from pure supplying chain point of view, a 35% - 37% drop is normally expected. For iPhone to have only 30% drop for Q1 production point of view, it indicates great market demand for the product.
3. A few days ago, street news indicated that Hong Hai (iPhone's manufacturer) already asked some of its worker to keep the production lines open during the Chinese New Year. This is another indication that Apple can't afford to have Hong Hai to shut down for 15 days, otherwise the market supply/demand will not be balanced. With Apple built up the volume in Q4 2012 anticipating the 15 days factory shutdown in Q1, and now saying that they still can't afford to have the Chinese New Year shutdown, it is strong indication that the demand is much stronger than what Apple expected in Q4 2012. Therefore, the 30% drop in Q1 production can not even be true!
AAPL will end at or around $560 by earnings.
Significant facts like two of Apple's main manufacturing partners in China deciding to disallow breaks even during the forthcoming Chinese New Year celebrations as an attempt to meet the increased demand for the iPhone 5 and iPad mini in calendar Q1 2013, has been diminished or ignored by media..
I’ll see who laughs last on Jan 23
With its market capitalization falling like a lead balloon, one has to wonder why is AAPL helpless. Does it not have any recourse to set the record straight without violating any of the SEC rules? I think AAPL has a moral responsibility to protect the interest of its supportive stock holders. It is high time AAPL opened up.
There is a trace of doubt sown in my mind due to the inaction of AAPL management if these negative comments may be true! Heavens forbid.
Reg FD.
APPELL PETE CORP (APPL)
http://yhoo.it/VAy4RP
Kudos Sammy & Nokey!
[Giggle]
Oh and why yes I do think not being aware you've misstated the company's actual symbol is relevant to comment on: goes to credibility as I see it.
Remember the hell that MSFT went through when they were harrassed by both US and EU anti-trust regulators. The company has never really recovered since. Dropping this case was a big deal for GOOG. As GOOG is becoming more and more a rival of AAPL, this bode ill for APPL.